Are you struggling to get paid on time? Could your invoicing and payment process be more organised and streamlined? We’ll explain the basics of good payment management and how tech can help speed up your cash collection.
Ensuring you get paid on time is crucial to commercial success. Making sales and generating revenue lies at the heart of any viable business model. But, you can’t manage your cashflow effectively or raise any profits if customers don’t actually pay their invoices.
The easier you can make it for customers to pay you, the faster you should see cash coming into the business. That’s good news for your financial position, your ability to cover your operational costs, and your capacity to fund the growth and expansion of your business.
So, how do you get those payments coming through in a timely manner?
Set out clear payment terms
An appropriate clause within your terms and conditions is the starting point for healthy payment times. This sets out when you expect to be paid and forms a legally binding contract with the customer. You may expect immediate payment on receipt of the invoice. It might always be the 20th of the following month. Or you might set out a specific number of days within which the invoice is due (generally 30, 60, 90 or 120 days, depending on your industry). Sometimes called ‘trade credit’, this allows customers to pay for goods and services at a later, pre-agreed date – helping them to spread the cost.
Your payment terms should also include details of any late payment penalties. If the customer doesn’t meet your agreed payment times, most businesses will add up to 1.5% monthly late payment fees to the outstanding bill. Hopefully, this clause will never have to be invoked, but it should act as an incentive for the customer to pay the bill on time before the penalty fees start accumulating.
Invoice customers as soon as you can
In a business-to-consumer (B2C) environment, your customers will generally pay for their goods and services immediately. However, in the business-to-business (B2B) world, you need to invoice your customer requesting payment.
A customer can’t settle their bill until they receive an invoice. So, it’s vital to send it out as quickly as possible to minimise the gap between completing and being paid for the work. In some industries, the project will be broken down into multiple invoices, paid across a period of time. For example, you might state that a deposit is payable immediately upon accepting the contract. This makes it easier for the customer to pay, and means you (as the supplier) don’t have to complete the project before receiving the money you’re owed.
Ideally, you want your invoices to go out as early as possible. This allows your payment terms to kick in and makes it easier to predict when cash will be coming into the business.
Be organised about your payment admin
Getting paid is a process. The more organised you make the process, the quicker the payment will come through. For starters, ensure you’re invoicing all the relevant people in the customer’s payment chain. This will usually be:
- Your main contact at the client – the person who you usually deal with
- The person who will approve the bill – the person who will green-light the payment
- The finance team – the person (or people) who will action the payment
It’s also a good idea to quote relevant purchase order (PO) numbers that the customer has raised, and to give a clear description of the work done or the goods purchased.
Embrace payment technology
Once upon a time, invoices were hard-copy printed bills, but in today’s digital age, the vast majority of companies send e-invoices. Electronic invoices are easy to raise (usually from your accounting software or project management app) and can be emailed instantly. Doing everything in the digital realm makes keeping records and monitoring payments easier.
Many e-invoice systems will also let you add a variety of payment options for the customer. You could just include your bank details and wait for the customer to make a direct payment to your account. But you can also have payment buttons in the e-invoice that allow customers to pay via digital payment gateways, like Xero, GoCardless or FeeSynergy.
Offering different payment options makes the whole process more convenient for your customers, which could result in faster payment times.
If you want to speed up your payment times and boost your cashflow, please do get in touch. Pathfinder Solutions can help you streamline your processes, embrace technology (which doesn’t need to cost the earth), and, ultimately, help your business be more cash positive.
About Pathfinder Solutions
Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.
Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.
